IMF Official Preaches Simplicity at World Bank Emissions-Trading Love-Fest

“Viva Emissions Trading!” could have been the title for the World Bank’s oddly anachronistic, “Pricing Carbon To Achieve Mitigation” event at the bank’s Washington, DC headquarters Wednesday. Fortunately, after nearly two hours of genuflection at the altar of emissions-trading, Min Zhu, Deputy Managing Director of the International Monetary Fund, took to the podium to commit the apostasy of calling for simple carbon taxes.

The opening panel featured officials from South Africa, South Korea, and China extolling “market mechanisms,” especially trading. In almost apologetic terms, the South African official described his nation’s carbon tax, assuring the audience that South Africa doesn’t intend to be left out of carbon markets. The South Korean official’s presentation indicated that the country has allocated 100% of carbon allowances in the first phase of its trading system but hopes to begin auctioning a small percentage of allowances in later phases, which will garner revenue. The Chinese official deflected a question about news reports that his country plans a carbon tax, emphasizing that China is establishing emissions trading so it can link with the European Union’s Emissions Trading Scheme (ETS). But, he said, carbon taxes are an “interesting alternative” that could play a role in the future in some sectors.

In a later panel, an EU official trotted out the oft-repeated ETS “success story” that always seems to overlook its problematic volatility followed by extreme price decline. She admitted the ETS might need “some adjustments.” Finally, after three panels of babble about linked carbon markets, offsets, monitoring, reporting, verification, etc., it was Min Zhu’s turn to deliver the closing remarks.

The IMF Deputy Managing Director struck a welcome new note, suggesting that the EU’s “collapsing carbon price” might be “cause for concern” and calling instead for a “crystal-clear, stable, credible carbon price” across sectors. Zhu recommended adding price ceilings and floors to emissions trading systems in order dampen volatility. He praised the IMF’s new compilation by Ian Parry et al., “Fiscal Policy to Mitigate Climate Change,” which emphasizes the revenue potential of simple, direct carbon taxes.

Comments

Thanks for sharing this! Unfortunately, while Zhu is affirming the integrity and effectiveness of a stable carbon price, even he is not directly calling for carbon taxes. He is also implicitly acknowledging that cap-and-trade-with-offsets remains the dominant model, and most, if not all of the world’s economies are committed to gaining a share of the profits from carbon trading. This is one of the biggest threats to effective climate legislation and the possibility of restoring a stable climate in the future.